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Tuesday, 12 March 2013

Of all the issues that have been raised in past couple of years in which the form and function of the new European patent package have been debated, none has produced as much anxiety, uncertainty and discomfort as bifurcation -- for those many countries which did not already make provision for it in their own patent law. To remind older readers and inform new ones, bifurcation of patent litigation occurs when the two great events in a patent's life -- actions for patent infringement and counterclaims in which its validity is contested -- are not heard by the same court at the same time in the same proceedings but are dealt with separately by different courts, at different times and with very different consequences. German patent law not only features bifurcation but has made it work tolerably well and has gained much experience of its strategic possibilities. The rest of Europe has not on the whole been eager to follow Germany, yet the possibility of bifurcation is an integral part of the new European patent order.In the piece which the IPKat hosts below, four London-based lawyers James Marshall, Christopher Thornham, David Sant and Paul England of Taylor Wessing LLP -- a law firm which rotates around a decidedly Anglo-German axis since it has six offices in Germany -- explain bifurcation as they see it, placing it within the wider context of patent litigation strategy, and tell us what they consider to be the available options:

Bifurcation
in the UPC

The Unified Patent Court (UPC) Agreement was signed on 19 February.
After more than 40 years of attempts to bring a single patent system to Europe, the UPC promises the ability to obtain
pan-European enforcement of patent rights in a single set of proceedings for
the first time.

The time taken to collect 13 ratifications and the seven
year opt-out available for new and existing European patents (as distinct from
Unitary Patents) means the full impact of the UPC may not be immediate. However,
it is now very probably coming and, within a few years, it may have a profound
effect on businesses in patent-rich fields.

Now is the time for patent-owning businesses to start focusing on
whether they wish to be in or out of the UPC and whether they wish to have
Unitary Patents. This means considering the implications of litigating Unitary
Patents and “opted in” (or, more accurately, non-opted-out) European Patents,
in the UPC.

What are the major pros and cons? And, is the much maligned
possibility of bifurcation really one of them? What effect will this have on
strategy decisions for claimants and defendants?

The new system
has risks

The new system is intended to provide a single patent jurisdiction
across Europe. Unitary Patents will protect
the whole of the European Union (except Italy
and Spain,
which do not wish to participate in the Unitary Patent system). A Unitary Patent
can, however, be revoked across Europe by one ruling, rather than requiring
separate revocations in each European country, as is presently the case.
Similarly, rulings of the UPC on European Patents (that are not opted out) will
have effect in those territories for which the European Patent is designated.

The possibility of a pan-European injunction is a serious hazard
for companies doing business in Europe. The hazard is compounded if there is a risk
of stock being seized (at a preliminary injunction stage until trial) and of
stock being destroyed (if held to infringe at trial). These matters may lead some businesses to
consider whether they can move their manufacturing or distribution centres to
countries not covered by the UPC – thus keeping stock out of the reach of
patentees.

Turning to patentees, the possibility of pan-European revocation
is a serious hazard. It is a reason why some companies will avoid Unitary
Patents and opt their European Patents out of the UPC system (while the option
remains) until they are confident about the quality of the decisions of the UPC
and how well the UPC system is working. Some patentees may decide to opt their
European Patents out initially, withdrawing that opt out if and when
pan-European enforcement via the UPC becomes a necessary strategy.

... or this ...?

Others might switch to filing national patents for certain
products, which have to be litigated country-by-country in the national courts.
Staying outside the UPC in this way avoids the risk of a single invalidity
decision revoking patent rights across all of Europe.
Many will keep mixed portfolios of
Unitary, European and national patents. Thus,
the UPC can be seen as another option for patentees, but not necessarily one
that all will want to use all of the time.
Over time, the UPC system (and the risk of losing the patent rights for
the whole of Europe if they are litigated) may
mean patentees who choose to file for a Unitary Patent may invest more time
during prosecution than they have done previously to obtain stronger patents: a
shift towards quality, not quantity.

The new system
has benefits

Obtaining a single Unitary Patent for the whole of Europe ought to be considerably less expensive than the
current systems with national rights that have to be maintained in each
country. The UPC system will have other obvious
advantages for patentees too: not least the fact that a patentee can enforce a
Unitary Patent or an ‘opted-in’ European Patent across most of Europe in one set of proceedings. There are other advantages of the new system, such as the added choice
it offers patentees of where to sue. For example, alleged infringing activity may
take place across territories covered by regional divisions and local divisions.
In this scenario, the patentee can choose where to sue.

This is important because, even though it is a ‘unified’ system,
the UPC is presently expected to have a dozen or more local and regional divisions.
These will contain panels of judges drawn from different legal traditions.
Consequently, there will be some scope, within the framework of the Rules of
Procedure, for local variations in approach and application of those rules. It
seems inevitable that this will lead to a dynamic situation in which some local
or divisional courts become perceived to be more patentee friendly than others.
For example, potentially patentee friendly approaches could include:

Relative ease of
obtaining an order to preserve evidence of infringement;

Relative ease of
obtaining a preliminary injunction (and any order to seize stock from the
defendant to preserve it until trial);

Relative procedural
speed;

An inclination
for the court to use its discretion to split off invalidity counterclaims
from infringement (so-called ‘bifurcation’); this would be favourable to
the patentee if there is a likelihood that the validity issue is then
determined in the central division of the UPC some time after the
infringement hearing.

Of all of these possibilities it is probably the last –
bifurcation – that has caused most concern. Is that concern justified?

The bifurcation option

Many have focused on the
potential of bifurcation to put defendants at a disadvantage, and to make
courts with a propensity for bifurcation a target of forum-shopping. The
concern is that owners of weak patents may have the potential to obtain injunctions
well before defendants have an opportunity to revoke the patent in suit. This
is the so-called ‘injunction gap’.

However, there are at least some reasons
to question whether bifurcation will happen as a matter of course in local
and regional divisions of the UPC. If an infringement case is filed in a regional
or local division of the UPC and the defendant files a counterclaim for
revocation of the patent, the Court has a variety of options, as provided for
in key passages of Article 33(3) of the UPC Agreement:

…The local or regional division concerned
shall, after having heard the parties, have the discretion either to:(a)proceed with both the action for infringement
and with the counterclaim for revocation [in the local or regional
division]....

(b)Refer the counterclaim for revocation for
decision to the central division and suspend or proceed with the action for
infringement [in the local or regional division]; or

(c)
With the
agreement of the parties, refer the case for decision to the central division.

Reasons why
bifurcation might not happen

Only one option involves
bifurcation (see Article 33(3)(b)). Even
then, the local or regional division has discretion whether to suspend the
infringement action or let it proceed. How
long an infringement action might be suspended is not stipulated. However, it is reasonable to assume that it
would be at least until the validity case is heard, in which case the risk of an
“injunction gap” would be removed.

One reason for not bifurcating is
that some divisional courts will have judges on their panels who are accustomed
to hearing trials of infringement and validity together. The benefit is that it
prevents a patentee construing its patent widely for infringement and narrowly
for validity.

Furthermore, the above reasons
should resonate with some principles of case management set out in the current
draft Rules of Procedure that include, amongst other things, considering
whether the likely benefits of taking a particular step justify the cost of
taking it; and giving directions to ensure that the hearing of the case
proceeds quickly and efficiently.

Dealing with bifurcation

Nonetheless, let us assume that under
the new system local and regional divisions in some territories will bifurcate
more often than others. The problem will
be that patentees can choose, in many circumstances, to file infringement
actions in those divisions where they know bifurcation is more likely. This
leaves potential defendants in a difficult position: the risk of a finding of
infringement and an injunction before validity has been decided.

What are the options?

The potential defendant, wishing
to market but concerned about a blocking patent, has limited options. If it initiates proceedings by filing a
declaration of non-infringement in the central division, the patentee can have
this stayed if it files an infringement counterclaim in a local or regional
division within three months. If it initiates
proceedings by filing a revocation action in the central division, the patentee
can keep issues of infringement heard separately if it sues for infringement in
a local or regional division where there is bifurcation.

One further option for a
defendant arises from Article 33(2) of the UPC Agreement:

If an [infringement action] is pending before
a regional division and the infringement has occurred in the territories of
three or more regional divisions, the regional division concerned shall, at the
request of the defendant, refer the case to the central division.

If the product is marketed in
more than three countries with a regional division, the choice of the patentee can
be removed and the whole action referred to the central division, at the
request of the defendant. It does not appear to be necessary for the patentee
to have actually alleged that infringement is occurring in the three regional
divisions. Providing the defendant’s
commercial objectives are aligned with such a coordinated launch, this
provision might be used to steer away from the threat of bifurcation. But even
then it is only partly useful: it only applies when an infringement action is already
pending before three regional divisions, not local divisions. It also assumes that there will be at least
three regional divisions in which to sell its products.

A staged
approach

In reality, parties who are
concerned that their planned product may be blocked by a Unitary Patent, or
‘opted in’ European Patent, may be best to adopt the approach of ‘clearing the
way’. If it is considered that the
patent is of questionable validity, the preferred strategy may be to file a
claim for revocation in the central division to obtain a decision before
launch. In cases where a party plans to
launch and considers a competitor’s patent may be valid, but is not infringed,
the preferred strategy may be to file a declaration of non-infringement in the
central division to obtain a decision before launch. If the same issues are in dispute on
validity and infringement and there is a “squeeze”, it may be a preferred
strategy to file claims in the central division for revocation and for a
declaration of non-infringement – again seeking the central court’s decision
before launch.

In circumstances where pursuing an
action to a trial decision before launch is commercially impractical, a staged
approach to launch might be an option: launching first only in territories where
the local or regional divisions do not bifurcate. In that situation, the
patentee may be forced to sue in a court that tries validity and infringement
together. Further elaboration of this
strategy may involve the party providing an undertaking not to launch initially
in territories where the court bifurcates (thus helping avoid the patentee
being able to start a claim based on a perceived threat of infringement there).

While there are pros
to the brand new court system, there will also be some cons. Quite how the cons
play out is a matter of speculation at the current time and may only become
apparent once the UPC is up and running.
However, if decisions on validity in the central divisions take longer
than decisions on infringement in the local and regional divisions, patentees will
choose to sue for infringement in bifurcating courts and defendants will try to
avoid bifurcating courts, so far as they can.

What do patent litigators from other firms, and other countries, think? The IPKat and his friends would love to know.

11 comments:

MaxDrei
said...

Why does Germany bifurcate? Because its Constitution (Grundgesetz) leaves it no other way. How do patent judges in Germany cope with this immovable obstacle? With the Formstein Doctrine and other devices to allow the court trying infringement to take cogniscence of validity issues.

So how will the beefed-up and international-ised patent courts of Germany take to the UPC? Like a duck to water, I shouldn't wonder, bifurcating only when they don't fancy doing validity (and when will that ever be?). After all, the home of patent litigation in Europe is Germany (order of magnitude more of it than in any other EU Member State) and so every patent litigator in Germany will do what the customer wants, including running infringement and validity cases all together and as much as possible of it in English.

On "clearing the way" note that Germans file 60% of all oppositions at the EPO. In their bifurcated system, it makes sense. Given what Taylor Wessing write above about seizing the initiative and getting one's retaliation in first, perhaps technological innovators in other Member States should think now about starting to copy the German approach? There are an awful lot of patent attorneys in Germany, all quite busy.

This is all very well for mech/chem/bio but what about EE? Clearing the way through those thickets is well-nigh impossible isn't it?

MaxDrei, with regard to oppositions, in order to copy the German approach, non-Germans will have to start watching the issuance of their competitors' patents much more closely, so as not to miss the opposition period. There are also some cultural obstacles for some countries to follow this approach: American companies are notoriously wary of using oppositions to contest the validity of a patent, for instance.

“Taylor Wessing LLP -- a law firm which rotates around a decidedly Anglo-German axis since it has six offices in Germany”

For the sake of completeness, it should be added that Taylor Wessing LP also hires Klaus-Heiner LEHNE, who is a Member of the European Parliament, but also chairman of the Committee on Legal Affairs (JURI, which was the (ir-)responsible committee in charge of the Unitary Patent and the UPC), and finally the rapporteur for the European Parliament for its opinion on UPC.

“If the product is marketed in more than three countries with a regional division, the choice of the patentee can be removed and the whole action referred to the central division, at the request of the defendant.”

This is just wishful thinking. For a defendant requesting that the infringement action being referred to the central division, she needs to admit that there is actual infringement in 3 countries or more.

According to Article 33(2) of the UPC Agreement (bold added):

“If an [infringement action] is pending before a regional division and the infringement has occurred in the territories of three or more regional divisions, the regional division concerned shall, at the request of the defendant, refer the case to the central division.”

The defendant has not to admit that the alleged infringement has occurred, but that an actual infringement has occurred. This would lead the defendant to lose any infringement case.

Gibus: What about if the defendant does not contest that their product infringes the patent, but does contest validity? Surely forcing the issue into the central court and preventing bifurcation is still a worthwhile tactic in that case.

@MaxDrei Sorry Gibus, I cannot follow your line of thought there. You tell us that we cannot read "alleged" in but must read "actual" in. Why the one but not the other?

Simply because without being qualified (by being “alleged”, “claimed”, “imputed”), the infringement should be considered to be... the infringement. Full stop.

But you're surely right, we are not in criminal law, where wordings should be well-defined. Frankly, there are too many places in the whole Unitary Patent package where the drafters have been vague enough to open space to various interpretations.

And thanks also to Darren Smyth for pointing out that Art. 33.2 UPC only refers to Regional divisions and not Local divisions. I guess it is one more occurrence where UPC should be interpreted implicitly to means more than what is written down.

Was it an oversight to confine to "Regional" Divisions? One hopes so. For if it were deliberate, that might show arrogance on the part of the Big Country drafting fathers, that their Local Divisions will have the competence to handle validity whereas little country Regional Divisions might not. Now that really would be ironic, given the fact of bifurcation in Germany. I think it is like saying (as one Big Country judge just did) that we must respect the established jurisprudence of the EPO on issues of patent infringement (see another thread currently running in this excellent blog).

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